Wayne Hemingway on the Housing Crisis

On the 9th of June 2014 I took part in a debate about the current housing crisis at the LSE to be aired on BBC Radio 4 – 8pm Wed 11th June 2014 and then repeated on Sunday 15th June. It was chaired by Mark Easton. I was particularly vocal and political; I hope they don’t cut me too much!

Well designed, affordable homes, in the right locations are essential for a balanced, productive and happy society. By delivering far too few homes, Britain has created a very difficult situation for those wanting to buy and created rentals that are on the whole far too high for those choosing or having to rent. Surely we want a society where the difference between rich and poor is narrowing, but the current surge in house prices is widening the gap again.
These were my research notes for the programme. I attempted to rank the issues and things that need addressing in some kind of order of importance.
There is no single “silver bullet” to solve the crisis, but rather, all or most of the below need addressing.

1. House Builders

House builders are too often operating in a monopoly situation where they control the speed at which a site is built out. There are a significant number of housing developments in the UK that are in excess of 300 homes (many are much larger). A development of this size often is the only one in that particular district of a town or city. House purchasers sensibly put location above all other factors when considering purchase. It may be a desire to be near family, work, and leisure. It may be about ease of access to public transport, schools, and healthcare. It may be about “brand”, how an area of a town is perceived.

Thus, if a house builder has a large scale scheme in an area, then if on the other side of town another house builder has a site for sale, there is still a quasi-monopoly situation. When a business is in a monopoly situation it is not unusual to restrict supply to force prices up and receive a better ROCE (Return on Capital Employed). This explains why it is the norm for a housebuilder to complete on average 1.6 homes a week per site when they could deliver so many more. Many house builders are recording record annual profits and delivering volumes way below the numbers when they posted previous record results. As well as serving their investors, reducing borrowing risk they are doing what most people would like to do. Do less and earn more!

There is a solution here. All development sites could have to have competition introduced by not allowing a single housebuilder to build, say over 100 and 150 units. This would bring us more in line the Netherlands and some Scandinavian countries where several house builders are selling homes at the same time on one site. By introducing competition, by the simple laws of how business works, there is bound to be an element of the different providers trying to outdo each other through either good design (kerb appeal), better interior fit outs, space standards and of course price and mortgage deals.
In many parts of Europe this competition has led to improved design and less nimbyism. Good design and housing developments in verdant landscaped public space has been proved to lift the price and desirability of areas of towns and cities. This can have a real positive effect on “Nimbyism”.

2. Not in My Backyard (Nimby’s)

Nimbyism stymies development but if that development is going to be as ugly and inappropriate is some developer’s wont, then how can you blame the Nimby’s?

Nimbyism is only going to be shrunk by house builders delivering a development that rather than screaming “bang goes the neighborhood” screams quality, liveability, desirability.

3. Planners and the Planning System

There needs to be planners and elected planning committee members who understand good design, are trained in place making, can recognise when they are being hoodwinked or steamrollered and are empowered to stop house builder in their tracks and then work with them to deliver something fit for purpose.

We need a younger profile to our elected members of local councils, anyone can stand – you just need to sacrifice some time, easier said than done when you have family and work commitments. The demographic that is being hit hardest by the housing crisis is the young; they need to find a voice.
It can be too easy for house builders to use their legal and financial weight to overpower the planning system.

We need more political, more skilled and creative planners and we need a career in planning to be considered every bit as desirable as architecture and design when it comes to education. We surely should be shouting more about the importance of place making to the quality of life. There is an argument for making it easier to enter the planning further education.

4. Reduce the Reality

Reduce the reality that getting onto the housing ladder can lead to relatively easy financial gains.

It really is counterproductive to a balanced society when some house owners can sit back and watch their homes appreciate in value every week above the rate at which an average salaried person gains income from going to work for 40 hours a week. This is wrong in every respect and sends out so many negative messages about the value of hard work.

It is human nature to want to earn money for doing nothing and when house price increases are rampant house owners naturally feel good. The demographic of house owners is naturally skewed away from the young and that general election voting has a higher turn out from this home owning demographic. Thus a feel good factor of rising house prices can help win elections, but damage society. In reality don’t we need a slight reduction in house values sustained over a decade to help a generation get a leg up? This could be achieved without throwing thousands into serious debt.

We need the young to come out and vote for a party that is looking towards their future in terms of where and how they are going to live and importantly a party that commits to building large number of homes. With home owning still being at around 65% those not owning are going to all have to vote if the status quo is going to be shifted or nudged.

5. Owning a House

We need to recognise that owning a house does feel good in terms of being able to put your “sweat equity” but offer alternatives that are equally or almost as desirable. Germany is a prime example of a country where renting a home isn’t seen as a poor man’s only choice. Tenants have significantly better rights than in the UK and this naturally leads to a better offer.

We need a growth in institutional and large scale commercial delivery of PRS (Private Rental Sector) homes. The East Village project in the former Olympic 2012 Athletes Village in Stratford is an exemplar scheme of high quality homes and landscape and is popular. I am led to believe that it works financially for the developer and investors.

If only we could divert all the Pension Fund monies wastefully propping up our outmoded High Streets. At the same time we need to recognise some of the worrying statistics about private landlords in terms of incidences of damp and the higher costs of renting than from renting from social landlords. There has to be legislation and monitoring to ensure that private landlords overall standards are increased.

6. Decent Homes

We need to get council’s building again on the land they own, building decent, high quality homes in the right places.

7. We Need to Rethink our Land Use

a) Make it easier for offices to be designated as possible housing.

b) Look at the not so green sections of the green belt.

c) Work our Brownfield sites hard.

d) Work our town centre first and second floors hard.

e) We need a government and local authorities that are not afraid of CPO (Compulsary Purchase Orders). The French are particularly good at that and last year delivered 342,000 homes – 3 times what the UK built.

8. London

We need to look carefully at the London situation where so many new builds are being marketed (often in roadshows travelling round Far Eastern cities) to the middle classes in Asian counties as investments. We could take a leaf out of The Australians here who have a fluid percentage (depending on local demand) of how many properties in a new development can be bought by overseas buyers.

9. Tax System

We need to put the tax system to better use to help finance council housing. We need to use London’s pull to heavily tax rich foreign investors who “buy to leave” or just buy to use occasionally or just buy here at all. We need to heavily tax UK investors who prefer to buy, leave empty and await capital appreciation so that they stop doing it! We should consider a mansion tax, increase taxation on those that can afford it – it’s a tricky one though.

10. Regions

We need to recognise that there is substantial opportunity and low values in the Midlands, the North, and elsewhere. We need to invest in our regions in terms of job creation and accessibility and take the heat out of the South East. We need a government that is willing to decentralise more of our public service HQ’s.

11. Self-Build

We need to increase self-build and community build from its current very low base of less than 10% – again many parts of continental Europe show’s us the way here.